IN the last decade, mortgage borrowers have been able to choose from a fast-growing array of loans. But now that investors have soured on mortgages, that situation has changed.
A case in point is the 50-year fixed-rate mortgage, which some lenders began offering last year as a way for borrowers to secure lower monthly payments without exposing themselves to the risk of interest rate increases associated with adjustable-rate loans.
At the time, the introduction of 50-year loans triggered speculation that these products could soon become pervasive. But no major lender has stepped forward to offer the loans — partly because borrowers were not clamoring for them, and partly because investors did not want them. Although some mortgage executives say 50-year mortgages could yet become popular, others are skeptical.
“The 50-year mortgages had some sizzle because they were new, but when you pull back the covers, you could see it wasn’t that great of a product,” said Jim Svinth, the chief economist at Lending Tree, an online lending site owned by
Mr. Svinth said 50-year mortgages were meant to appeal to the same crowd as two other, more established, products. The first is the “interest only” loan, in which borrowers pay only the interest for a set period of time — usually 10 years or less — before repaying the loan’s principal on an accelerated basis. The second is the 40-year fixed-rate loan, in which monthly payments are lower than for mortgages with shorter terms, simply because they are stretched over a longer period of time.
But for a great many homeowners, such loans would present a major pitfall: they would be unlikely to build any significant equity in the house. That is because on average homeowners sell their homes within seven years.
Even with 30-year fixed-rate mortgages, borrowers repay very little of the principal in seven years; the earliest payments on a mortgage are overwhelmingly interest.
Still, monthly payments are lower with a 50-year loan than on a 40-year loan, although not lower than the initial period of an interest-only loan. For instance, a $350,000 loan at 7 percent for 50 years would cost $2,106 a month, while the 40-year loan would cost $2,175. Still, the interest-only loan would cost only $2,042 a month for the first 10 years, although not a cent of principal would be paid in that time.
While that difference has not been enough to generate much demand for the product, a larger reason, Mr. Svinth said, lies with investors.
Specifically, government-sponsored companies like
The dearth of buyers for such mortgages could explain why these loans are difficult to find in the greater New York area.
One company, Statewide Bancorp of Rancho Cucamonga, Calif., offers them to
The limited availability of these loans could yet change. Joseph F. Heisler Jr., president of the New Jersey Association of Mortgage Brokers, said, “We could still see more lenders coming out with these to help people qualify for loans.”
